Uncertain IP leads to less innovation

We've been debating patents on the blog recently. Charlotte wrote about a really cool experiment that appeared to show that IP limits follow-on innovation.

I previously wrote that the follow-on benefits of innovation were on net positive, because the effect of bringing what would otherwise be business secrets into the open outweighs the cost of firms not being able to build on other firms innovations for free.

A newly published paper takes on another angle: collaboration. Entitled "R&D Collaboration with Uncertain Intellectual Property Rights" (full pdf of 2011 version) and by authors Dirk Czarnitzki, Katrin Hussinger, and Cédric Schneider it argues that firms shy away from working with other businesses when their intellectual property rights are less clear.

Patent pendencies create uncertainty in research and development (R&D) collaboration, which can result in a threat of expropriation of unprotected knowledge, reduced bargaining power and enhanced search costs. We show that—depending of the type of collaboration partner and the size of the company—uncertain intellectual property rights (IPRs) lead to reduced collaboration between firms and can, hence, hinder knowledge production.

Among firms with patent applications the average probability to collaborate with a competitor amounts to 13%. The probability of collaborating with a competitor decreases by 3% points for these firms if the share of pending patents in the patent application stock increases by one standard deviation at the mean. Thus, the average probability of collaborating with firms in the same industry is reduced by about 23% (=3/13), which is a sizeable impact.

Take that, Charlotte!